How to calculate market value of equity

Written by w d adkins
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How to calculate market value of equity
How to calculate market value of equity (Digital Vision./Photodisc/Getty Images)

The market value of equity is another term for market capitalisation ("market cap" for short). Market value of equity is defined as the total cash value (based on the current market price) of the fully diluted outstanding shares in a company. Fully diluted means this includes all shares owned by the pubic and restricted shares owned by company officers, plus any shares that would be issued if existing convertible bonds and stock options were converted to shares. Shares issued by the company that it has repurchased are not considered outstanding shares.

Skill level:
Moderate

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Things you need

  • Company annual report
  • Current stock price
  • Calculator

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Instructions

  1. 1

    Find the total number of shares outstanding for a company. This information is normally included in a company's annual report. You can download a company's annual report from its investor relations website. If you can't find the annual reports you need online and your broker doesn't have copies, you can order them directly from the companies.

  2. 2

    Look up the current price of the company's stock. Looking up stock quotes online is relatively easy. Most financial websites provide tools to look up prices. It is easier if you know the company's stock symbol and the exchange(s) the stock trades on. This information is also in the company annual report. However, for some small companies with low trading volume, you may need to call a broker and ask for a quote.

  3. 3

    Multiply the number of outstanding shares by the price of the stock to calculate the market value of equity. For example, if a corporation has a total of 30 million shares outstanding and the stock is trading at £29 per share, the market capitalisation works out to £0.8 billion. Keep in mind that this market value of equity is not a fixed amount. The market cap of a stock varies as the price of the shares changes.

Tips and warnings

  • Investors often categorise stocks based on their market capitalisation. Although there is no official standard, large-cap usually refers to a market capitalisation of more than £3 billion. From £0.6 billion to £3 billion is a mid-cap stock and less than £0.6 billion is considered a small-cap. Some people add more categories: Micro-cap stocks have a market capitalisation of less than £162 million and nano-cap stocks less than £32 million.

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